Correlation Between SPDR Gold and Northern Lights

Can any of the company-specific risk be diversified away by investing in both SPDR Gold and Northern Lights at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining SPDR Gold and Northern Lights into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SPDR Gold Shares and Northern Lights, you can compare the effects of market volatilities on SPDR Gold and Northern Lights and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in SPDR Gold with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Gold and Northern Lights.

Diversification Opportunities for SPDR Gold and Northern Lights

-0.45

Correlation Coefficient

SPDR Gold  Northern Lights

Very good diversification

The 3 months correlation between SPDR and Northern is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Gold Shares and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and SPDR Gold is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on SPDR Gold Shares are associated (or correlated) with Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of SPDR Gold i.e., SPDR Gold and Northern Lights go up and down completely randomly.

Pair Corralation between SPDR Gold and Northern Lights

Considering the 90-day investment horizon SPDR Gold Shares is expected to generate 0.77 times more return on investment than Northern Lights. However, SPDR Gold Shares is 1.31 times less risky than Northern Lights. It trades about 0.28 of its potential returns per unit of risk. Northern Lights is currently generating about -0.09 per unit of risk. If you would invest  24,307  in SPDR Gold Shares on December 25, 2024 and sell it today you would earn a total of  3,418  from holding SPDR Gold Shares or generate 14.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

SPDR Gold Shares  vs.  Northern Lights

SPDR Gold Shares

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Gold Shares are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal essential indicators, SPDR Gold exhibited solid returns over the last few months and may actually be approaching a breakup point.

Northern Lights

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Lights has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Northern Lights is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SPDR Gold and Northern Lights

The main advantage of trading using opposite SPDR Gold and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Gold position performs unexpectedly, Northern Lights can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Northern Lights will offset losses from the drop in Northern Lights' long position.

The idea behind SPDR Gold Shares and Northern Lights pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Insider Screener module to find insiders across different sectors to evaluate their impact on performance.